Better off with a franchise?

'Morning boss. There's a fellow in reception who was on his way past, and popped in because he thinks he might start with a franchise. What do you think I should I do with him?'

'Go and knock his head on the counter, if it sounds empty, then tell him we have none left.'

THUMP!

'What happened?'

'I knocked too hard. Now he thinks he can start with his own business.'

Starting your own business takes nerve. It's better to start off as young as you can. In that way you should have at least three decades to recover financially, when your business goes belly up. Unless you are thick-skinned, highly motivated and willing to take major financial risks you are better off with a franchise.

If you are older and tied down with mortgages, expenses, dependants and children, then shy away from starting self employment. You will have experience of the world, and the connections to succeed, but what you may lack is the entrepreneur spirit and the willingness to take risks with your lifestyle. You also will be better off with a franchise.

You may already be so convinced of your success, taking any advice may seem a waste of time. If that is how you feel about your idea, then you are definitely better off with a franchise.

How can I be so sure that self-employment will fail? The odds against your success are around the same as placing a bet on the first round of The X-Factor.

Half of new businesses disappear within three years. In that initial year there are often signs indicating failure, which you will choose to ignore. Most prefer the Mr Micawber approach by expecting that 'something will undoubtedly turn up'. The results may show your sales are lower, your expenses are higher and hard work counts for nothing.

The second year will prove the direction is definitely downward. Before the third year is finished someone usually calls a halt. Even if you survive through the initial period it doesn't improve. After six years the number of businesses left in operation will be about a quarter of those that started out with such high hopes.

It can be the bank that calls a halt before you begin, by simply refusing your initial loan request. The business of a bank is not to produce debt defaulters, nor inflict bankruptcy on a borrower.

The bank's ideal scenario is a deal where the originator of the business idea invests the majority of the capital required, and is then supported by the bank against unexpected financial demands. It also needs proof that you are able to live on the profits from the business, in addition to having clear plans on how you intend to repay the capital and interest over a period of no more than three years.

The best it may offer is to fund 'tangible' assets - stock, machinery, vehicles, or anything that can be 'touched'. The idea is that if the business fails, it owns something that can be sold to partly recover its investment.

In that respect it will prefer to loan a fixed amount by crediting your business account at its branch. If you prevaricate before investing the loan in equipment or stock, it has few worries. The interest accumulates from the moment the amount is transferred.

Banks will try to avoid offering overdrafts. Generally they are secured only against debtors, are usually exceeded, and the terms are often the cause of considerable grief to both parties.

No bank will ever fully fund your business and provide the extra you need to maintain your lifestyle at no risk to your personal property and finances. They demand that the level of loss will hurt you, not them, if the idea fails.

It may be that you are one of the considerable amount who have no track record in business, or lack a long credit history. For you, the start-up financing will be notoriously hard to get. Many are tempted to scrape together their own savings, use credit cards, or tap their relations for funds. If that sounds like you then you are better off with a franchise.

If and when the money rolls in, you may be tempted to spend. It is all too easy to pay yourself a massive salary, and blow the rest on fancy cars. If that could potentially be you, then yes, you guessed it... you are better off with a franchise.

So how does a franchise solve the problems that beset a start-up business?

It is no longer your job to convince anyone of your business idea. A franchise is proof that the business idea is working. The franchisor has already spent years ironing out the pitfalls to produce a business success. Other franchisees have joined the organisation, providing evidence that the concept is reliable.

Age is no longer a bar to success. Your entrepreneur spirit will find ample opportunity to flourish while being correctly directed under the mentoring of experienced, and possibly older, franchisors.

For the mature franchisee the concept offers an environment where their experience and knowledge can be added to a thrusting and dynamic operation. Financial security is higher with a franchise, and most will be following a work ethic that already corresponds to the values you have subscribed to during your previous employment.

Joining a franchise makes you part of a business family. The franchisor operation acts as a father figure, providing valuable advice and encouragement to newcomers. Fellow franchisees become your siblings, offering a different viewpoint, and support. As with all older brethren, they will have already travelled the rocky path when they began their business venture.

Bankers are more amenable to loan proposals recommended by a franchisor, rather than those who simply walk in off the street. While the individual loan investigation will be just as searching and incisive, the bank will have been fully informed by the franchisor. Most franchisors will quickly point you in the direction of one of the major banks with whom they have an ongoing relationship. With a little luck it may prove to be a bank where you already have an account.

When you finally present your proposal, be sure to contact as many banks as you can. A little horse trading over the interest rate or loan terms is always well worth the effort.

Scraping together your investment is never easy. With a franchise, parents and relations will be more likely to invest, knowing that their capital will be placed in the hands of a reliable and credible operation.

Partnerships in business are always easy to offer. With any start-up business, you are actually offering your fellow investor a half share of nothing. You have no sales or profit to share; no goodwill, assets or market share.

With a franchise, your initial investment purchases a tangible asset. Your partner initially receives a valuable half share of the franchise 'system '. The hard work and their investment will see that value grow over the years, often at a rate higher than similar high-risk investments.

The nature of franchising generally provides a 'caring 'environment. Family and dependants are drawn into the franchise operation, and all will be encouraged to attend the number of social and business events the franchisor provides. Rare indeed is the annual conference where partners are not invited.

Conferences and meetings are an opportunity for an exchange of news, views and chatter away from the enclosed world of your own business. They have a levelling effect, as the newest and smallest franchisee mingles happily with the longest-serving and largest. Most vehicles on the adjoining car park will be company-owned.

Salaries, income and overall profitability will be widely discussed, while franchise head office is willing to discuss your year's performance gathered from the figures provided by everyone within the network. Little opportunity is provided within this type of culture to impart spin on good or bad news. Best Newcomer and Franchisee of the Year will be awarded by results, and not based on your inflated opinion.

Changing your approach from 'starting my own business' to 'joining a franchise' removes many of the initial problems, while at the same time adding even greater responsibility. The need to convince a banker of your ability has lessened, but you now work at convincing the franchisor of your suitability. Successful franchisors will prove reticent to take on a new entrant lacking either motivation, experience or background. A poorly managed and operated franchisor shows interest only in your capital and financial resources.

Your first task is to review your career, education, qualifications and experience by selecting those areas that will strike a responsive chord in the franchisor. Management experience at any level, in any craft, will earn bonus points, as will any sales or marketing ability.

Life and business partners will form part of this 'self analysis' as you trawl through their lives seeking to add extra benefits to your application. Their skills and expertise can be added to the equation.

A higher franchise fee is in itself a crude selection method. An expensive, profitable and well-managed franchise will quite rightly assume you already have the wherewithal to meet their capital requirements, before you even approach them.

Those happy few who are able to meet the larger investment will have already proved themselves to be excellent managers, or lucky lottery winners.